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LABOUR DEMAND

Why the World Bank and ILO are at odds over minimum wage

Labour experts have criticised a World Bank report that, among other things, suggests that the introduction of a national minimum wage in SA would shift labour demand towards skilled labour.

The conclusions are contained in the 11th edition of the South Africa Economic Update released in April.

In it, the bank writes that the implementation of the minimum wage, to be set at R20 an hour, would also deepen the intensity of capital at the expense of unskilled labour and disproportionally affect the price of goods consumed by the poor.

While the bank said the effect of the legislation on inequality was not clear-cut given poor enforcement, its microeconomic analysis suggested "that the introduction of the national minimum wage would have a positive, but marginal, impact on reducing inequalities, depending on its negative effect on employment".

Business Day understands that local labour institutions are planning to challenge the report and other suggestions shared by the World Bank in a presentation entitled Overcoming Poverty and Inequality in South Africa.

The presentation was made last week and a follow-up meeting had been scheduled to discuss some of the issues that agencies such as the International Labour Organisation (ILO) disagreed with. According to the presentation, current policies would not eliminate poverty or significantly reduce inequality by 2030.

Joni Musabayana, director of the ILO in Pretoria, said the UN labour agency’s disagreement with the World Bank report was mainly on its assertions that the implementation of the minimum wage would have a "less favourable conclusion".

"In that presentation, they talked about their perceived minimal effect of the minimum wage and for us. As the ILO we are saying it has not yet been instituted, unless if we talk about an evidence-based report how do we know? It is going to positively impact on millions of workers; how can that possibly not have a good effect," he said.

Labour analyst Tony Healy said the different outlooks expressed by the ILO and the World Bank were not surprising. "The World Bank has taken a more middle, right or centre view on this, saying let the market dictate and the ILO is pro-regulation, it’s not surprising."

Healy said that the minimum wage would increase barriers for entry-level workers and turn the focus of many employers to skilled labour.

This was due to SA’s high unemployment rate, he said.

President Cyril Ramaphosa defended the minimum wage legislation in Parliament on Tuesday, saying more countries around the world were embracing the minimum wage, including developing economies.